I understand how supply and demand works but I’m confused as to who actually is in charge of setting the price to display to all trading platforms. Since the stock price is constant across all trading platforms, what algorithm or system is in place to ensure there are no clashes or discrepancies between said platforms? Is there one dominating platform that monitors all stock prices which other platforms refer to such as the NYSE?
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To understand stock prices, you need to understand that there are two kinds of orders that make up the market. One kind of order is called a limit order it means “I don’t care when I trade, but if someone wants to buy stock from me I’ll sell this a certain number of shares to them at a certain price (maybe 100 share at $50/share). The other kind is called a market order and it means that “I want to buy shares at the best available price right now”.
If you can find a source for a level 2 quote during market hours, you’ll see all the limit orders to buy or sell stock that people have placed to buy or sell stock at any given time.
When a market order to buy comes in the lowest sell limit order sells to them at that price and when a market order to sell comes in the highest limit order sells to them.
When limit orders buy or sell all their stock the next best price becomes the one that’s filled. When new limit orders are placed they get added to the stack sorted by price.
So throughout the day prices bounce between market orders that want to buy or sell, and as limit orders are filled they move up to the next ones. Lots of large market order buying causes all the sell limit orders to fill and prices to rise, and lots of market order selling causes the buy limit order price to fall. Lots of both kinds causes the difference between the two to widen.
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